FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 33-48432
LAYNE CHRISTENSEN COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
48-0920712
(I.R.S. Employer Identification No.)
1900 SHAWNEE MISSION PARKWAY, MISSION WOODS, KANSAS 66205
(Address of principal executive offices) (Zip Code)
(913) 362-0510
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
There were 8,871,467 shares of common stock, $.01 par value
per share, outstanding on November 15, 1996.
<PAGE>
PART I
ITEM 1. Financial Statements
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<CAPTION>
October 31, January 31,
1996 1996
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 551 $ 382
Customer receivables, less allowance
of $1,349 and $887, respectively 37,099 33,572
Costs and estimated earnings in excess
of billings on uncompleted contracts 13,523 9,777
Inventories 15,188 15,495
Deferred income taxes 5,597 7,082
Other 1,860 1,305
Total current assets 73,818 67,613
Property and equipment:
Land 5,096 4,469
Buildings 12,976 12,064
Machinery and equipment 98,380 93,497
116,452 110,030
Less - Accumulated depreciation (67,331) (62,141)
Net property and equipment 49,121 47,889
Other assets:
Investment in foreign affiliates 17,281 14,921
Investment in domestic affiliate 1,958 2,203
Intangible assets, at cost less
accumulated amortization 623 525
Property and equipment held for sale 406 198
Other 1,204 828
Total other assets 21,472 18,675
$ 144,411 $ 134,177
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(In Thousands of Dollars, except per share data)
<CAPTION>
October 31, January 31,
1996 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 10,920 $ 13,225
Current maturities of long-term debt 112 105
Accrued compensation 10,254 8,869
Accrued insurance expense 4,997 4,936
Accrued integration 1,166 2,703
Other accrued expenses 7,148 7,088
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,347 3,891
Total current liabilities 40,944 40,817
Noncurrent and deferred liabilities:
Long-term debt 32,343 28,428
Deferred income taxes 2,018 2,323
Accrued insurance expense 6,174 6,198
Other 1,578 2,439
Total noncurrent and deferred
liabilities 42,113 39,388
Contingencies
Stockholders' equity:
Preferred stock, par value $.01 per
share, 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, par value $.01 per share,
30,000,000 shares authorized,
8,871,467 and 8,839,845 Shares issued
and outstanding, respectively 89 88
Capital in excess of par value 39,293 38,954
Retained earnings 23,025 16,170
Notes receivable from management
stockholders (199) (313)
Unrecognized pension cost (716) (777)
Cumulative translation adjustment (138) (150)
Total stockholders' equity 61,354 53,972
$ 144,411 $ 134,177
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except per share data)
<CAPTION>
Three Months Nine Months
Ended October 31, Ended October 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Net service revenues $ 52,218 $ 40,876 $150,012 $114,458
Net product sales 7,994 3,492 20,285 10,029
Total 60,212 44,368 170,297 124,487
Cost of revenues(exclu-
sive of depreciation
shown below):
Cost of service revenues 37,132 28,832 108,358 81,799
Cost of product sales 5,908 2,841 14,722 8,269
Total 43,040 31,673 123,080 90,068
Gross profit 17,172 12,695 47,217 34,419
Selling, general and
administrative expenses 9,849 7,355 29,438 20,784
Depreciation 2,752 2,005 8,204 6,009
Operating income 4,571 3,335 9,575 7,626
Other income (expense):
Equity earnings of
foreign affiliates 1,290 - 3,118 -
Interest (559) (172) (1,847) (458)
Other, net 31 246 579 317
Income before income taxes 5,333 3,409 11,425 7,485
Income tax expense 2,133 1,568 4,570 3,443
Net income $ 3,200 $ 1,841 $ 6,855 $ 4,042
Net income per common
and dilutive equivalent
share $ .35 $ .25 $ .75 $ .55
Weighted average number
of common and dilutive
equivalent shares
outstanding:
Weighted average
shares outstanding 8,871,000 7,334,000 8,863,000 7,325,000
Dilutive stock options 279,000 65,000 265,000 65,000
9,150,000 7,399,000 9,128,000 7,390,000
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands of Dollars)
<CAPTION>
Nine Months
Ended October 31,
1996 1995
<S> <C> <C>
Cash flow from operating activities:
Net income $ 6,855 $ 4,042
Adjustments to reconcile net income
to cash From operations:
Depreciation and amortization 8,442 6,125
Deferred income taxes 1,180 (949)
Equity earnings in foreign affiliates (3,118) -
Dividends received from foreign
affiliates 1,086 -
Gain from disposal of property
and equipment (328) (257)
Changes in current assets and liabilities:
Increase in customer receivables (3,527) (2,775)
Increase in cost and estimated
earnings in excess of billings
on uncompleted contracts (3,746) (753)
Increase (decrease) in inventories 307 (4)
Increase (decrease) in other
current assets (555) 216
Decrease in accounts payable
and accrued expenses (2,336) (2,231)
Increase in billings in excess
of costs and estimated earnings
on uncompleted contracts 2,456 1,099
Other, net (962) (234)
Cash from operating activities 5,754 4,279
Cash flow from investing activities:
Additions to property and equipment (10,219) (10,805)
Proceeds from disposal of property
and equipment 903 586
Proceeds from sale of property
held for disposal - 242
Investment in foreign affiliates (328) -
Investment in domestic affiliate 295 -
Cash from investing activities (9,349) (9,977)
Cash flow from financing activities:
Net borrowings under revolving facility 4,000 5,500
Repayments of long-term debt (78) -
Payments on notes receivable from
management stockholders 114 22
Debt issuance costs (272) (15)
Cash from financing activities 3,764 5,507
Net increase (decrease) in cash
and cash equivalents 169 (191)
Cash and cash equivalents at
beginning of period 382 579
Cash and cash equivalents at
end of period $ 551 $ 388
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LAYNE CHRISTENSEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies and Basis of Presentation
The consolidated financial statements include the accounts of the
Layne Christensen Company and its subsidiaries (together, the
Company), all of which are wholly-owned. All significant
intercompany transactions have been eliminated. Investments in
affiliates (33% to 50% owned) in which the Company exercises
influence over operating and financial policies are accounted for
on the equity method. The unaudited consolidated financial
statements should be read in conjunction with the consolidated
financial statements of the Company for the year ended January
31, 1996 as filed in its Annual Report on Form 10-K.
The accompanying unaudited consolidated financial statements
include all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for
a fair presentation of financial position, results of operations
and cash flows. Results of operations for interim periods are
not necessarily indicative of results to be expected for a full
year.
Net income per common and dilutive equivalent share was
calculated by dividing net income by the weighted average number
of common and dilutive equivalent shares outstanding. Options to
purchase common stock are included except when their effect is
antidilutive.
The amounts paid for income taxes and interest are as follows (in
thousands of dollars):
Nine Months Ended October 31,
1996 1995
Income taxes $2,530 $2,482
Interest 1,601 421
During the first quarter of fiscal 1997, the Company issued
31,622 shares of common stock to employees related to fiscal 1996
compensation awards. The total value of this award was
approximately $340,000, which was accrued at January 31, 1996.
<PAGE>
2. Inventories
The Company values inventories at the lower of cost (first-in,
first-out) or market (in thousands of dollars):
As of
October 31, January 31,
1996 1996
Raw materials $ 1,511 $ 2,070
Work in process 1,203 846
Finished products,
parts and supplies 12,474 12,579
Total $ 15,188 $ 15,495
3. Contingencies
The Company provides environmental drilling and consulting
services that are related to the cleanup of hazardous substances,
toxic wastes and other pollutants. Rendering these services
exposes the Company to potential significant liability for claims
related to the costs of environmental remediation and other
damages. The Company has obtained a "claims made" pollution
liability policy limited to $20 million for any individual claim
and $20 million for all claims in the aggregate made under such
policy in any given year. While the Company believes this is a
cost effective level of environmental insurance coverage in light
of the risks associated with its business, no assurance can be
given that the amount and scope of coverage will be adequate.
The Company's former parent, The Marley Company ("Marley"),
maintains insurance reserves for the Company on its financial
statements to cover expected losses under various casualty
insurance policies for occurrences prior to April 30, 1992.
Those reserves were funded through intercompany charges to the
Company, which were calculated on the basis of the estimated
insured losses incurred by the Company. The Company has
indemnified Marley for claims or retroactive insurance premiums
on those policies that exceed the amount of reserves attributable
to the Company's estimated losses through April 30, 1992. The
Company believes that the amount of such reserves will be
sufficient to cover its reasonably anticipated insured losses
under past insurance policies.
The Company is involved in various matters of litigation, claims
and disputes which have arisen in the ordinary course of the
Company's business. While the resolution of any of these matters
may have an impact on the financial results for the period in
which the matter is resolved, the Company believes that the
ultimate disposition of these matters will not, in the aggregate,
have a material adverse effect upon its business or consolidated
financial position.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The following table presents, for the periods indicated, the
percentage relationship which certain items reflected in the
Company's consolidated statements of income bear to revenues and
the percentage increase or decrease in the dollar amount of such
items period to period.
Three Nine Period
Months Months -to-
Ended Ended Period
October 31, October 31, Change
1996 1995 1996 1995 Three Nine
Months Months
Revenues:
Water well drilling 30.1 34.5 28.8 34.9 18.8 13.0
Well and pump repair
and maintenance 18.8 25.7 21.0 26.7 (1.2) 7.6
Mineral exploration
drilling 21.5 10.7 22.4 10.2 174.5 200.2
Environmental drilling 9.2 16.4 10.2 16.0 (24.0) (12.7)
Specialty contracting
and other services 7.1 4.8 5.7 4.2 98.2 86.5
Total service
revenues 86.7 92.1 88.1 92.0 27.7 31.1
Product sales 13.3 7.9 11.9 8.0 128.9 102.3
Total revenues 100.0 100.0 100.0 100.0 35.7 36.8
Cost of revenues:
Cost of service
revenues 71.1 70.5 72.2 71.5 28.8 32.5
Cost of product sales 73.9 81.4 72.6 82.5 108.0 78.0
Total cost of revenues 71.5 71.4 72.3 72.4 35.9 36.7
Gross profit 28.5 28.6 27.7 27.6 35.3 37.2
Selling, general and
administrative expenses 16.4 16.6 17.3 16.7 33.9 41.6
Depreciation 4.5 4.5 4.8 4.8 37.3 36.5
Operating income 7.6 7.5 5.6 6.1 37.1 25.6
Other income (expense):
Equity earnings of
foreign affiliates 2.1 - 1.9 - - -
Interest (0.9) (0.4) (1.1) (0.4) - -
Other, net 0.1 0.6 0.3 0.3 - -
Income before income taxes 8.9 7.7 6.7 6.0 56.4 52.6
Income tax expense 3.6 3.5 2.7 2.8 36.0 32.7
Net income 5.3 4.2 4.0 3.2 73.8 69.6
RESULTS OF OPERATIONS
In a December 1995 merger transaction (the "Merger"), the Company
acquired Christensen Boyles Corporation ("CBC"), a world leader in
providing diamond core drilling services for mineral exploration
and among the largest manufacturers of diamond core bits, core
barrels, drilling rigs and related equipment used by the mining
industry. The Merger was treated as a purchase for financial
accounting purposes, and accordingly, the results of operations
include the results of CBC from the acquisition date.
Revenues for the three months ended October 31, 1996 increased
$15,844,000 or 35.7% to $60,212,000 while revenues for the nine
months ended October 31, 1996 increased $45,810,000 or 36.8% to
$170,297,000 from the three and nine months
<PAGE>
ended October 31, 1995, respectively. Water well drilling
revenues increased 18.8% to $18,168,000 and 13.0% to $49,154,000
for the three and nine months ended October 31, 1996 compared to
revenues of $15,290,000 and $43,496,000 for the three and nine
months ended October 31, 1995, respectively. The Company believes
the increase in water well drilling revenues for the three and
nine months is mainly the result of a continued increase in
domestic municipal spending in certain areas of the United States,
primarily in southern California and increased demand in certain
areas in the Midwest. Well and pump repair and maintenance
revenues decreased 1.2% to $11,304,000 and increased 7.6% to
$35,720,000 for the three and nine months ended October 31, 1996
from $11,443,000 and 33,188,000 for the three and nine months
ended October 31, 1995, respectively. The Company has experienced
an increase in activity year-to-date in several markets for these
services, despite a slight slow down, primarily in the southwest,
in the third quarter. Mineral exploration drilling revenues
increased 174.5% to $12,964,000 and 200.2% to $38,092,000 for the
three and nine months ended October 31, 1996 from $4,722,000 and
$12,688,000 for the three and nine month periods ended October 31,
1995, respectively. The increase is the result of the Merger and
continued strong mining demand in Mexico. Environmental drilling
revenues decreased 24.0% to $5,528,000 and 12.7% to $17,360,000
for the three and nine months ended October 31, 1996 from
$7,275,000 and $19,892,000 for the three and nine months ended
October 31, 1995, respectively. The Company believes the
decreases are mainly the result of a continuing soft market for
the environmental services offered by the Company. Product sales
increased 128.9% to $7,994,000 and 102.3% to $20,285,000 for the
three and nine months ended October 31, 1996 from $3,492,000 and
$10,029,000 for the three and nine month periods ended October 31,
1995, respectively, as a result of the Merger.
Gross profit for the three and nine months ended October 31, 1996
remained relatively constant, 28.5% and 27.7%, respectively, as
compared to 28.6% and 27.6% for each of the same periods last
year. The Company experienced increased margins on mining product
sales from manufacturing operations acquired through the Merger,
offset by lower gross profit on CBC services.
Selling, general and administrative expenses increased to
$9,849,000 and $29,438,000 for the three and nine months ended
October 31, 1996 compared to $7,355,000 and $20,784,000 for the
three and nine months ended October 31, 1995, respectively. The
increase in selling, general and administrative expenses is a
result of the Merger.
Depreciation increased to $2,752,000 and $8,204,000 for the three
and nine months ended October 31, 1996 compared to $2,005,000 and
$6,009,000 for the same periods last year. The increase in
depreciation is primarily a result of the Merger and ongoing
capital expenditures.
Equity in earnings of foreign affiliates were $1,290,000 and
$3,118,000 for the three and nine month periods ended October 31,
1996, respectively. These earnings are a result of the
investments in foreign affiliates acquired in connection with the
Merger.
<PAGE>
Interest expense increased $387,000 and $1,389,000 for the three
and nine months ended October 31, 1996 compared to the three and
nine months ended October 31, 1995, respectively. The increase is
primarily a result of the increased borrowings necessitated by the
Merger.
Income taxes of $2,133,000 and $4,570,000 for the three and nine
months ended October 31, 1996, respectively, increased from
$1,568,000 and $3,443,000 in the same periods last year as a
result of higher income before taxes compared to the prior year.
The effective tax rate for the three and nine months ended October
31, 1996 was 40.0% compared to 46% for the same periods last year.
This improvement in the Company's effective tax rate is primarily
a result of the tax treatment of the foreign affiliates acquired
through the Merger.
Changes in Financial Condition
Cash from operations was $5,754,000 for the nine months ended
October 31, 1996 compared to $4,279,000 for the same period last
year. The change in cash from operations was primarily a result
of more profitable operations for the nine months compared to the
same period last year. Additions to property and equipment were
$10,219,000 during the nine month period ended October 31, 1996.
The Company's borrowings under its revolving credit facility at
the end of the period were $6,000,000.
At the time of the Merger, the Company accrued certain costs for
the integration of CBC operations. For the nine months ended
October 31, 1996, the Company's integration resulted in a net cash
outflow of $1,537,000. The Company is proceeding with the
movement of both employees and assets, and will incur additional
cash outflows later in fiscal 1997. The Company's liquidity and
capital resources will not be significantly affected by the
integration outflows.
The Company believes that borrowings from its available credit
agreement and cash from operations will be sufficient for the
Company's seasonal cash requirements and to fund its budgeted
capital expenditures for at least the balance of the fiscal year.
<PAGE>
PART II
ITEM 1 - Legal Proceedings
NONE
ITEM 2 - Changes in Securities
NOT APPLICABLE
ITEM 3 - Defaults Upon Senior Securities
NOT APPLICABLE
ITEM 4 - Submission of Matters to a Vote of Security Holders
NONE
ITEM 5 - Other Information
NONE
ITEM 6 - Exhibits and Reports on Form 8-K
There were no Reports on Form 8-K filed during the quarter.
The exhibits filed with or incorporated by reference in this
report are listed below:
Exhibit No. Description
27(1) Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LAYNE CHRISTENSEN COMPANY
(Registrant)
DATE: December 6, 1996 /s/ A.B. Schmitt
A.B. Schmitt, President
and Chief Executive Officer
DATE: December 6, 1996 /s/ Jerry W. Fanska
Jerry W. Fanska, Vice President
Finance and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 551
<SECURITIES> 0
<RECEIVABLES> 51,971
<ALLOWANCES> 1,349
<INVENTORY> 15,188
<CURRENT-ASSETS> 73,818
<PP&E> 116,452
<DEPRECIATION> 67,331
<TOTAL-ASSETS> 144,411
<CURRENT-LIABILITIES> 40,944
<BONDS> 32,343
0
0
<COMMON> 89
<OTHER-SE> 61,265
<TOTAL-LIABILITY-AND-EQUITY> 144,411
<SALES> 7,994
<TOTAL-REVENUES> 60,212
<CGS> 43,040
<TOTAL-COSTS> 45,792
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 559
<INCOME-PRETAX> 5,333
<INCOME-TAX> 2,133
<INCOME-CONTINUING> 3,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,200
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0
</TABLE>
